a

GAO

United States Government Accountability Office

Report to Congressional Committees

September 2005 FORCE STRUCTURE

Actions Needed to 

Improve Estimates 

and Oversight of Costs 

for Transforming 

Army to a Modular 

Force 

GAO-05-926
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-926.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Sharon Pickup 

at (202) 512-9619 or pickups@gao.gov. 

Highlights of GAO-05-926, a report to 

congressional committees 

September 2005

FORCE STRUCTURE

Actions Needed to Improve Estimates 

and Oversight of Costs for Transforming 

Army to a Modular Force 

The Army’s cost estimates for its modular force are evolving and have 

increased substantially, and uncertainty exists that will likely increase costs 

further. In March 2005, the Army estimated it will need $48 billion to fund 

modularity through 2011, a 71 percent increase from its 2004 estimate of $28 

billion. However, this latest estimate does not include $27.5 billion in 

personnel and construction costs the Army and GAO identified, bringing 

potential known costs to $75.5 billion. Uncertainties remain in this estimate 

related to force design, equipment, facilities, and personnel, which could 

increase costs or require the Army to reduce capabilities. Until the Army 

provides a more reliable estimate of its modularity costs, DOD and Congress 

will not be well positioned to weigh competing requests for funding. 

The Army’s funding plan, which it uses as the basis for developing funding 

requests, relies on annual and supplemental appropriations and may present 

future affordability challenges. Uncertainty in cost estimates noted above, 

reliance on business engineering efficiencies that historically have been 

difficult for DOD to achieve, and likely cost growth from another high-cost 

program—Future Combat Systems—collectively pose the risk of making this 

plan unaffordable. Also, as shown below, the Army will be creating most of 

the modular units before it has the funding to support them.

Comparison of Modularity Restructuring and Funding Schedules 

2004 2005 2006 2007 2008 2009 2010 2011

Dollars in billions

0

2

4

6

8

10

12

14

Source: GAO analysis of Army funding data and unit creation schedules.

0

10

20

30

40

50

60

70

80

Modular units created/restructured

Fiscal year

Modular units created/restructured Funding

8.0

9.6 9.8

10.9

12.5 12.7

12.1

3 1

4

32

40

68

24 22

Note: The Army plan did not include funding data for fiscal year 2004. 

While the Army can generally identify overall equipment purchases, it lacks 

an approach for tracking most modularity obligations and thus cannot 

provide a reliable picture of past spending or future funding needs. Army 

officials said they had not established a framework to track personnel and 

equipment obligations in part due to the difficulty of defining whether such 

expenses were incurred specifically for modularity or to support the force in 

general. However, we note the Army has made such distinctions in its past 

funding requests, including identifying specific amounts needed for 

equipment, and will require such data to develop and justify future requests.

In 2004, the Army began 

transforming its force into modular 

brigade-based units, thus 

expanding the number of units 

available for deployment and 

creating new command and 

support units. The Army is 

transforming while engaged in the 

Global War on Terrorism and 

developing other high-cost 

capabilities. This prompted 

congressional concern about the 

affordability of Army plans. Thus, 

under the Comptroller General’s 

statutory authority, GAO examined 

the Army’s restructuring. This 

report addresses (1) the extent of 

change in costs and areas of 

uncertainty that could affect those 

costs, (2) the Army’s plan for 

funding modularity and factors that 

may affect affordability, and (3) 

whether the Army has an adequate 

approach to track modularity 

obligations. 

What GAO Recommends

GAO recommends that the 

Secretary of Defense provide 

Congress an annual plan outlining 

the costs of Army modularity and 

develop an approach to track funds 

obligated for this effort. The

Department of Defense (DOD) 

agreed on the need to provide 

Congress better information on 

Army modularity, but stated it does 

not plan to establish an approach 

for tracking costs. GAO reiterates 

the need for the Secretary to 

provide a plan for overseeing 

expenditures for Army modularity 

in a matter for congressional 

consideration.
Page i GAO-05-926 Force Structure 

Letter 1

Results in Brief 2 

Background 5 

Modular Transformation Cost Estimate Has Increased, and 

Uncertainties Surrounding Pending Decisions May Increase 

Costs Further 8 

The Army’s Funding Plan Poses Funding Risks That May Cause 

Affordability Challenges in the Future 15 

Lack of an Approach to Track Funds Obligated for the Modular 

Force Limits the Transparency of Funds Used 19 

Conclusions 21 

Recommendations for Executive Action 21 

Matter for Congressional Consideration 22 

Agency Comments and Our Evaluation 22 

Appendix I Scope and Methodology 28 

Appendix II Comments from the Department of Defense 30 

Appendix III GAO Contact and Staff Acknowledgments 37 

Tables 

Table 1: Army Schedule for Transforming to the Modular Design 7 

Table 2: Modular Force Cost Estimates for the Entire Army by 

Function 10 

Table 3: Modular Force Funding Plan 15 

Figure 

Figure 1: Comparison of Army Modularity Restructuring and 

Funding Schedules 17 

Contents 
Page ii GAO-05-926 Force Structure 

Abbreviations 

BRAC Base realignment and closure 

CBO Congressional Budget Office 

DOD Department of Defense 

FCS Future Combat Systems 

FYDP Future Years Defense Program 

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Page 1 GAO-05-926 Force Structure 

September 29, 2005 

Congressional Committees 

The Army considers its transformation into a modular force to be the most 

extensive reorganization of its force since World War II, requiring large 

investments in personnel and equipment to restructure a force now 

organized in divisions to a modular brigade-based force. By the end of 

fiscal year 2006, the Army plans to reorganize its 10 active duty divisions, 

expanding from 33 brigades to 43 modular brigade combat teams, and by 

fiscal year 2010, create new types of command and support units. At the 

same time, the Army is fighting the Global War on Terrorism and 

developing other new capabilities such as the Future Combat Systems 

(FCS).1

 As the Department of Defense (DOD) requests funds to support 

these Army initiatives, it is incumbent on DOD to provide the best 

available data to justify its resource needs. 

Because of the magnitude of the Army’s transformation plans and growing 

congressional concerns about their affordability, we are examining both 

the force structure and cost implications of the Army’s transformation into 

a modular force under the Comptroller General’s statutory authority. We 

presented our preliminary observations on the Army’s plan in a March 

2005 hearing before the Subcommittee on Tactical Air and Land Forces, 

House Committee on Armed Services.2

 This report focuses on the cost of 

the modular force, with an emphasis on assumptions related to the active 

component because these plans were the most mature at the time of our 

review. Because of your oversight responsibilities, we are sending this 

report to you. Specifically, we (1) determined the extent of change in the 

Army’s cost estimate for transforming to a modular force and the potential 

areas of uncertainty that could affect those costs, (2) examined the Army’s 

plan for funding these costs and factors that may affect its ability to afford 

modularity, and (3) determined whether the Army has an adequate 

approach to track modularity obligations. We will be providing a separate 

 1

 FCS is a program that consists of a family of systems composed of advanced network 

combat and sustainment systems, unmanned ground and air vehicles, and unattended 

sensors and munitions. 

2

 GAO, Force Structure: Preliminary Observations on Army Plans to Implement and 

Fund Modular Forces, GAO-05-443T (Washington, D.C.: Mar. 16, 2005). 

United States Government Accountability Office

Washington, DC 20548 
App 

Page 2 GAO-05-926 Force Structure 

report on force structure implications of the modular transformation at a 

later date. 

Overall, our assessment of the cost estimate, funding plan, and the 

approach for tracking obligations associated with the modular force 

transformation focused on the assumptions underlying cost projections 

for equipment, personnel, and facilities as they related to the modular 

force proposed by the Army. We examined the processes for developing 

them and assessed the estimates against analyses from officials 

knowledgeable about each of the cost categories. We found this 

information sufficiently reliable for analyzing the assumptions underlying 

costs of the modular force and funding plans. Specifically, to assess 

change and uncertainty in the cost estimate, we compared the Army’s 

original rough order of magnitude estimate with updated estimates and 

discussed reasons for the changes with Army budget and programming 

officials. We also discussed areas of uncertainties with Army officials 

responsible for equipment procurement, personnel, and facilities, 

including both headquarters and command officials. To assess the 

affordability of the funding plan, we examined the plan in light of our 

ongoing and previously issued reviews examining Army assumptions 

about other high-cost programs and projected efficiencies expected in the 

Army’s budget. To assess the Army’s approach for tracking modular force 

costs, we discussed processes used to track these funds at the command 

and headquarters levels, and discussed the Army’s existing processes for 

tracking costs in general with headquarters officials. We conducted our 

review from May 2004 through June 2005 in accordance with generally 

accepted government auditing standards. Further information on our 

scope and methodology and data reliability assessment appears in 

appendix I. 

The Army’s cost estimates for transforming to a modular force are 

evolving and have increased substantially, and uncertainty exists that will 

likely increase costs. As of March 2005, the Army estimated that it will 

need $48 billion to fund modular forces—which represents a 71 percent 

increase from its 2004 estimate of $28 billion.3

 However, this most recent 

estimate does not include $27.5 billion in personnel and construction costs 

the Army and GAO have identified, bringing the potential known costs to 

 3

 Unless otherwise noted, costs presented in this report are in then-year dollars. 

Results in Brief 
App 

Page 3 GAO-05-926 Force Structure 

$75.5 billion.4 Uncertainties remain in assumptions about force structure 

design, equipment requirements and shortfalls, personnel costs, and 

basing, which could increase costs even more. For example, if the 

Secretary of Defense decides to further increase the number of brigade 

combat teams—a decision to be made in fiscal year 2006—increases in 

equipment, facilities, and personnel costs may occur. In addition, the 

amount for equipment costs included in the Army’s estimate is likely 

understated because it does not entirely reflect the cost of purchasing all 

the equipment needed to bring the currently planned units to the modular 

design—and therefore to the level of capability—that the Army validated 

in testing. Also, Army officials are uncertain whether the current end 

strength authorization is enough to support the modular conversion, 

putting personnel costs at risk of increasing if additional end strength is 

needed. Finally, the costs of constructing permanent facilities are 

uncertain because they have not incorporated recent proposals for base 

realignment and closure and restationing of personnel from overseas. If 

costs grow due to these uncertainties, the Army may require additional 

funding beyond $75.5 billion or need to accept reduced capabilities among 

some or all of its units. Until the Army provides a better understanding of 

costs associated with the modular force and a clearer picture of the impact 

of resource decisions on the modular force capability, DOD will not be 

well positioned to weigh competing priorities and make informed 

decisions nor will Congress or the Secretary of Defense have the 

information they need to evaluate funding requests. 

The Army’s 2005 through 2011 funding plan for its modular force, which 

relies on a combination of supplemental and regular appropriations and 

efficiencies, contains various risks that may pose difficult affordability 

challenges in the future. In sum, the Army anticipates it will fund the $75.5 

billion cost for modularity with $10 billion in supplemental appropriations, 

$42.5 billion in regular appropriations (including $4.5 billion achieved 

through efficiencies), and a GAO-estimated $23 billion in either 

supplemental or regular appropriations to pay for personnel expenses. 

According to Army officials, the Army plans to use this strategy to meet its 

aggressive schedule for completing its modular conversion and to avoid 

canceling or restructuring other programs. It also intends to use its 

funding plan as the basis for developing requests for regular 

appropriations and supplemental appropriations funds. Several risk 

factors may impede the Army’s ability to adhere to its plan. First, the Army 

 4

 In constant fiscal year 2006 dollars, this totals $71.6 billion. 
App 

Page 4 GAO-05-926 Force Structure 

will be creating units before funding is available to restructure them. Its 

schedule for creating and transforming modular units shows that by 2008, 

96 percent of the 194 active and reserve units will be created by the time 

the Army has a little over half of its anticipated funding. Further, 

uncertainties in the cost estimate for the modular force noted above may 

increase the costs of the conversion. The funding plan also relies on the 

Army to produce $4.5 billion from business process reengineering 

efficiencies in order to fund new construction for the modular force. 

However, the Army’s ability to achieve these savings is uncertain because 

DOD historically has had difficulty achieving these efficiencies. Finally, 

although the bulk of funding for the Army’s FCS—a high-cost, high-priority 

Army program—occurs outside modular transformation time frames, we 

have reported that the program is at significant risk for not delivering 

required capability within budgeted resources, and that because of the size 

of FCS, cost growth could have dire consequences on the affordability of 

other Army programs. Collectively, the risks associated with uncertainties 

in cost estimates; the Army’s ability to find efficiencies; and implementing 

two high-cost, high-priority programs could pose challenges for DOD and 

the Army in the future. 

While Army officials stated they can generally identify overall equipment 

purchases, the Army lacks an approach for tracking and categorizing most 

obligations related to modularity and thus cannot provide decision makers 

a transparent, reliable picture of past spending or future budget 

requirements for the modular force. Federal internal control standards 

state that agencies should provide reasonable assurance that an agency’s 

objectives are being achieved through, among other things, reliable reports 

on budget execution.5

 While the Army reported obligations of $133 million 

for its operation and maintenance expenses in fiscal year 2004 for the 

modular force transformation, Army officials told us that additional funds 

were obligated for personnel and equipment, but they could not specify 

the amounts. Initial Army estimates indicated that these costs could have 

been as high as $496 million. Army officials told us that they had not 

established a framework to track these modularity expenditures in part 

because of the difficulty in distinguishing whether such expenses were 

incurred specifically for the modular force transformation or to support 

the force in general. We note, however, that the Army has made such 

distinctions in its past funding requests for the modular force by 

 5

 GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999). 
App 

Page 5 GAO-05-926 Force Structure 

requesting specific amounts of funds for equipment. For example, in 

documentation supporting the fiscal year 2005 supplemental appropriation 

request, the Army stated that it required $4.6 billion for modularity largely 

to fund equipment, vehicles, and facilities, and $3.1 billion to repair tanks 

and handle other battle losses. Moreover, without centrally tracking and 

reporting on equipment and personnel expenditures specifically related to 

its modular transformation, the Army cannot determine if the funding it 

planned and programmed for this purpose is being spent to meet the 

requirements for modularity. In addition, Congress cannot be certain that 

the funds it has authorized for fulfilling the Army’s modular conversion 

requirements were spent for that purpose and that future funding requests 

for the modular force are justified in light of those expenditures. 

We made recommendations to DOD to improve information available to 

decision makers on the cost of the Army’s plans and related expenditures. 

In comments on a draft of this report, DOD strongly disagreed with our 

findings related to the cost estimate for the modular force and the 

uncertainties we cited. DOD stated that its cost estimate was solid and 

that any uncertainties would not substantially change the estimate. For the 

reasons stated above and as discussed in the section summarizing these 

comments, we do not believe the department is in a position to state that 

the estimate is solid. Further, while DOD agreed on the need for improved 

reporting on modularity plans, it did not agree to establish an approach for 

tracking modularity costs as we recommend. Given the magnitude and 

significant cost of the effort, and the fact that DOD has requested funds 

from Congress specifically for modularity, we continue to believe 

oversight of expenditures is needed. Therefore, we have included a matter 

for congressional consideration. Specifically, Congress should consider 

requiring the Secretary of Defense to provide a plan for overseeing 

spending of funds provided for modularity. 

The Army’s modular force transformation, which has been referred to as 

the largest Army reorganization in 50 years, encompasses the Army’s total 

force—active Army, Army National Guard, and U.S. Army Reserve—and 

directly affects not only the Army’s combat units, but related support and 

command and control. Restructuring these units is a major undertaking 

because it requires more than just the movement of personnel or 

equipment from one unit to another. The Army’s new units are designed, 

equipped, and staffed differently than the units they replace, therefore 

successful implementation of this initiative will require many changes, 

such as new equipment and facilities; a different mix of skills and 

Background 
App 

Page 6 GAO-05-926 Force Structure 

occupational specialties among Army personnel; and significant changes 

to training and doctrine. 

The foundation of the modular force is the creation of brigade combat 

teams—brigade-size units that will have a common organizational design 

and will increase the pool of available units for deployment. The Army 

believes a brigade-based force will make it more agile and deployable and 

better able to meet combatant commander requirements. Not only does 

the Army expect to produce more combat brigades after its restructuring, 

it believes the brigades will be capable of independent action by the 

introduction of key enablers, such as enhanced military intelligence 

capability and communications, and by embedding various combat 

support units in the brigade itself instead of at a higher echelon of 

command. The Army’s objective is for each new modularized brigade 

combat team, which will include about 3,000 to 4,000 personnel, to have at 

least the same combat capability as a brigade under the current divisionbased force, which ranged from 3,000 to 5,000 personnel.6

 Since there will 

be more combat brigades in the force, the Army believes its overall 

combat capability will be increased as a result of the restructuring, 

providing added value to combatant commanders. 

Although somewhat smaller in size, the new modular brigades are 

expected to be as capable as the Army’s existing brigades because they 

will have different equipment, such as advanced communications and 

surveillance equipment, and a different mix of personnel and support 

assets. The Army’s organizational designs for the brigade combat teams 

have been tested by its Training and Doctrine Command’s Analysis Center 

at Fort Leavenworth against a variety of scenarios, and the Army has 

found the new designs to be as effective as the existing brigades in 

modeling and simulation. 

By 2011, the Army plans to have reconfigured its total force—to include 

active and reserve components, and headquarters, combat, and support 

units—into the modular design. The plan includes expanding the existing 

33 brigades in the active component division structure into 43 modular, 

standardized brigade combat teams by fiscal year 2006. Table 1 shows the 

Army’s schedule for transforming to the modular design. 

 6

 The Army’s plan calls for three variants of the modularized brigade combat team. The 

infantry variant will have about 3,300 personnel, the armored variant 3,700 personnel, and 

the Stryker variant 4,000 personnel. 
App 

Page 7 GAO-05-926 Force Structure 

Table 1: Army Schedule for Transforming to the Modular Design 

 2004 2005 2006 2007 2008 2009 2010 2011 Total

Active maneuver 

brigade combat 

teams added 3 3 4 0 0 0 0 0 10

Active maneuver 

brigade combat 

teams reconfigured 10 5 11 7 0 0 0 0 33

Active 

headquarters units 3 3 4 4 1 2 1 0 18

Active support 

units 6 4 11 12 4 2 0 0 39

Total active units 22 15 30 23 5 4 1 0 100

Army National 

Guard units 0 9 34 13 23 0 0 3 82

U.S. Army Reserve 

units 0 0 4 4 4 0 0 0 12

Total Army units 22 24 68 40 32 4 1 3 194

Source: GAO analysis of Army data. 

Supporting DOD’s goals for transformation while undertaking current 

operations is a complex undertaking. In addition to the sheer magnitude of 

force structure changes the Army is implementing, the Army’s 

transformation to a modular force is occurring as the Army is rotating over 

160,000 troops annually into combat theaters to fight the Global War on 

Terrorism. As an indication of the progress already made, the Army 

reports it has built 5 new brigade combat teams, converted 16 brigade 

combat teams, and created 16 modular support brigades. In addition, the 

Army reports it has made “rebalancing” decisions affecting over 100,000 

military positions in order to make the best use of its available personnel. 

This involves creating more units of the types needed most and eliminating 

from the force units of lesser priority. 

Legislation has increased the Army’s end strength in part to support the 

modular reorganization. In the Ronald W. Reagan National Defense 

Authorization Act for Fiscal Year 2005, the Army was authorized an end 

strength of 502,400 soldiers—a 20,000 soldier increase of the fiscal year 

2004 end strength of 482,400.7

 The 2005 act also authorized the Secretary 

 7

 Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Pub. L. 

No. 108-375 § 401 (2004). 
App 

Page 8 GAO-05-926 Force Structure 

of Defense to increase the Army’s end strength as high as 512,400 during 

fiscal years 2005 through 2009 to support the operational mission of the 

Army in Iraq and Afghanistan and to achieve transformational 

reorganization objectives of the Army.8

Since the summer of 2004, the Army’s cost estimate for transforming its 

force through fiscal year 2011 increased from $28 billion to $48 billion in 

its spring 2005 estimate. While this latest estimate addressed some of the 

shortcomings of the initial estimate, and includes lessons learned 

developed from operations in Iraq, this estimate excludes some known 

costs and includes uncertainties that may increase the cost estimate 

further. The Army did not include personnel costs, which we estimate to 

total $23 billion over the same time frame, and also did not include $4.5 

billion in construction costs the Army plans to achieve through 

efficiencies. When added to the most recent estimate, the total known 

costs increase from $48 billion to $75.5 billion.9

 Uncertainties in the 

estimate could cause costs to increase higher. Pending decisions about the 

number and design of modular units, and uncertainties surrounding 

equipment, personnel, and facilities costs, may require the Army to request 

additional funding beyond $75.5 billion or accept reduced capabilities 

among some or all of its units. Without a clearer picture of the Army’s 

resource requirements, DOD will have difficulty weighing competing 

funding priorities, and the Secretary of Defense and Congress will not 

have information they need to evaluate funding requests. 

The Army’s current cost estimate for the modular force transformation is 

$48 billion, a 71 percent increase from its initial rough order of magnitude 

estimate of $28 billion made in the summer of 2004.10 There were several 

weaknesses in the initial $28 billion estimate. Because the modular force 

designs had not been finalized, earlier estimates reflected costs based 

mainly on the existing division-based design. Further, in constructing the 

active component portion of the estimate the Army (1) assumed the costs 

 8

 Ibid, § 403. 

9

 In constant fiscal year 2006 dollars, this totals $71.6 billion. 

10 The initial estimate for the active component transformation, which accounted for $20.1 

billion of the initial $28 billion, was presented to the President and Secretary of Defense in 

a January 2004 briefing on the modular force transformation. In later briefings the Army 

added $7.9 billion to cover the costs of transforming the reserve component. 

Modular 

Transformation Cost 

Estimate Has 

Increased, and 

Uncertainties 

Surrounding Pending 

Decisions May 

Increase Costs 

Further 

Cost Estimate for the 

Modular Force Has 

Increased 
App 

Page 9 GAO-05-926 Force Structure 

of adding 15 light infantry, division-based brigades but did not include 

costs of restructuring the existing combat brigades in the force structure; 

(2) did not include restructuring of command and support units; and (3) 

made no allowances for permanent construction to house and support 

these units, funding instead temporary facilities reflecting the Army’s 

assumption that end strength increases would be temporary as well. 

In March 2005, the Army increased its estimate for transforming to a 

modular force to $48 billion from fiscal year 2005 through 2011.11

According to Army officials, this most recent estimate addressed 

shortcomings of the initial estimate in that it included funding to (1) both 

create new units and restructure existing ones, (2) build permanent 

facilities to house and sustain the new force structure, and (3) used the 

modular design where available as the basis for estimating costs. 

Moreover, officials told us that the modular design had been updated to 

reflect lessons learned about equipping and employing the force from 

ongoing operations in Iraq. 

This estimate, however, did not include personnel costs and some 

construction costs. The Army reported that increases in end strength 

above the appropriated end strength of 482,400 soldiers were assumed to 

cost $3 billion per year, but were not tallied as part of the estimate. 

According to Army officials, these personnel costs were excluded because 

officials from the Office of Management and Budget and in the Office of 

the Secretary of Defense provided guidance that modular transformation 

was largely equipment related, and thus the Army should not include such 

costs. Further, Army officials cited the difficulty in segregating end 

strength cost increases due to modularity versus those due to ongoing 

operations. For example, units preparing for deployment to Operation 

Iraqi Freedom are being reorganized into a modular organization prior to 

deployment. While we acknowledge that it may be difficult to clearly state 

whether end strength increases associated with a deploying unit were due 

to modular transformation or operational requirements, we believe 

including these costs in their entirety is appropriate because (1) the Army 

has stated it requires an increase in end strength to accommodate the 

modular force, (2) it assumes that its tempo of operations will continue at 

the same pace through 2011, and (3) excluding personnel costs would 

 11 Army officials told us they excluded fiscal year 2004 costs from the estimate because the 

Army wanted to present future requirements, as opposed to past expenditures, and that the 

inclusion of the fiscal year 2004 modular force costs would add a relatively minor increase 

to the overall costs. 
App 

Page 10 GAO-05-926 Force Structure 

significantly understate the cost of the modular force. The Army’s $3 

billion estimate multiplied over the 7-year period from 2005 through 2011 

and including estimates for inflation totals $23 billion, based on GAO’s 

calculations. In addition to these personnel costs, the Army did not include 

an additional $4.5 billion in efficiencies it planned to apply to construction 

costs related to the modular force. This assumption is discussed in more 

detail in the next section. Adding these known costs for construction and 

personnel to the Army’s official estimate brings the total potential known 

costs to $75.5 billion. 

According to Army data and our projection of personnel costs, equipment 

accounts for 54 percent of the costs, personnel for 30 percent, military 

construction and facilities for 8 percent, and sustainment and training for 

8 percent as well. These figures along with the annual totals are presented 

in table 2. 

Table 2: Modular Force Cost Estimates for the Entire Army by Function 

Dollars in billions 

 2005 2006 2007 2008 2009 2010 2011 Total

Percent 

of total

Equipping 4.7 5.8 5.4 5.9 6.5 6.7 6.0 $41.0 54

Personnel 3.0 3.1 3.2 3.3 3.4 3.5 3.6 $23.0 30

Military 

construction/ 

facilities 0.3 0.0 0.5 0.5 1.5 1.5 1.5 $5.8 8

Sustainment 

and training 0.0 0.7 0.7 1.2 1.1 1.0 1.0 $5.7 8

Total $8.0 $9.6 $9.8 $10.9 $12.5 $12.7 $12.1 $75.5 100

Sources: GAO analysis of Army cost estimates for equipping military construction and facilities, and sustainment and training costs; 

GAO projection of Army personnel cost data. 

While the Army’s latest cost estimate addressed several of the shortfalls in 

its initial rough order of magnitude estimate, uncertainties in its latest 

estimate are likely to cause costs to increase. We identified the following 

factors that could affect equipment, personnel, and facilities costs. 

The Army’s Campaign Plan calls for a decision by fiscal year 2006 on 

whether to create five additional modular brigade combat teams—a 

decision that could affect the size and composition of the modular force as 

well as its cost. Adding five brigades would provide additional capability 

to execute the defense strategy but would require additional restructuring 

of people and equipment. If the Secretary of Defense decides to add five 

Uncertainty Surrounding 

Assumptions Could Result 

in Further Cost Increase 

Future Decisions on Design of 

Combat, Support, and 

Command Units Could Affect 

Costs 
App 

Page 11 GAO-05-926 Force Structure 

brigade combat teams to the current plan, the cost for modularity will 

increase significantly. For example, each modular brigade combat team 

under the current design would require 3,300 to 3,700 soldiers, for a 

potential total of up to 18,500 soldiers. It is not clear whether the Army 

would have to add this entire amount to its end strength, however. The 

Army has begun initiatives to rebalance the force by converting military 

positions to civilian positions, thus allowing soldiers currently in the 

institutional force to be moved to the operational force, and by 

rebalancing the active and reserve components in the force. To the extent 

the Army is successful in reallocating positions under these initiatives, it 

may be able to offset some of these requirements of the additional 

brigades. In addition to personnel requirements, adding these brigades to 

the force structure would add costs for equipment, facilities, and training. 

At the time the cost estimates were set, the Army had not finished the 

designs for all support units and command and control echelons. 

Refinement of these designs could increase costs if, as the Army fields 

these designs, it finds that additional personnel and equipment are needed 

to ensure sufficient capabilities. Some Army officials we spoke with have 

already expressed concern that command echelon designs do not have 

sufficient staff to manage all required tasks. For example, at one division 

we visited, officials thought that the command design was short staffed 

given their expanded set of responsibilities. As a result, command staff 

would have to prioritize the management of daily tasks and activities such 

as trend analysis, statistical tracking, and oversight, while leveraging of 

historical data to produce lessons learned and program improvement 

would have to be performed by contractors or other civilian staff. In both 

cases, if the Army finds that staffing levels in current command designs 

are not sufficient, it will have to choose between decreased capabilities or 

increased personnel expenses stemming from higher end strength 

requirements or hiring civilians or contractors to perform some of these 

functions. 

Equipping brigade combat teams poses cost uncertainties because the 

Army did not use the equipment quantities in the tested design as the basis 

for determining equipment costs. Instead, the amount estimated for 

equipment reflects costs based upon a lesser modified amount of 

equipment that does not necessarily meet the capabilities of the tested 

design. The Army determined it could expect to provide this modified 

equipment level to units undergoing conversion based on the limitations of 

its current inventory of equipment, planned procurement pipelines, and 

expected funding. 

Equipping Brigade Combat 

Teams Poses Cost 

Uncertainties 
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Page 12 GAO-05-926 Force Structure 

Further, in estimating its equipment costs for the modular force, the Army 

assumed that some equipment from ongoing operations would remain in 

operational condition for redistribution to new and restructured modular 

units. To the extent equipment is not returned from operations at assumed 

levels, it is not clear whether costs of replenishing this equipment would 

be considered modularity costs or costs of ongoing operations. Currently, 

equipment is wearing out and being consumed at higher-than-expected 

rates due to significant usage in current operational commitments 

overseas. For example, a Congressional Budget Office (CBO) assessment 

indicates that trucks in Iraq and Afghanistan are being driven roughly 10 

times more miles per year than the average over the past several years. An 

internal Army assessment also found that tactical vehicles in Iraq are being 

utilized 6 to 10 times the normal operating tempo, dramatically reducing 

expected service life and creating significant repair expenses. In addition, 

the Army’s prepositioned stocks will have to be reconstituted due to their 

heavy use in Operation Iraqi Freedom. We recently reported that 

according to Army officials, the Army is nearing completion on a new 

strategy for its prepositioning programs.12 They told us that prepositioning 

will continue to be important in the future and that the prepositioned sets 

would be converted to the modular configuration by 2012 or sooner. 

However, until the strategy is finalized, costs for converting this equipment 

remain unclear. 

Potential increases in the number of brigades and pending decisions 

related to base realignment and closure (BRAC) and restationing of forces 

from overseas present considerable uncertainty in facilities cost estimates. 

As previously noted, the current estimate does not include the cost of 

funding to cover five additional brigades that may be added if approved by 

the Secretary of Defense in fiscal year 2006. A decision to add these 

brigades would add significantly to the modular force facilities’ funding 

requirements. Without knowing where these brigades would be stationed, 

it is difficult to evaluate funding requirements for facilities because each 

base will likely have a different inventory of facilities in place to house and 

support such units. However, according to Army facility planning 

estimates, each new brigade combat team would require approximately 

$300 million dollars in permanent facilities if there are no existing 

facilities, such as barracks and vehicle maintenance facilities, at the 

proposed site. This planning estimate does not include facilities 

 12 GAO, Military Prepositioning: Better Management and Oversight Needed to Reduce 

Risk and Improve Future Programs, GAO-05-427 (Washington, D.C.: July 2005). 

Facilities Cost Estimates 

Remain Uncertain 
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Page 13 GAO-05-926 Force Structure 

requirements for higher headquarters and support units, which can be 

substantial. For example, at Fort Campbell, the facility requirements for 

support and headquarters units accounted for $156 million, or 28 percent, 

of the $553 million dollar permanent construction requirements for the 

installation. None of these costs have been incorporated into the current 

estimate. 

The impact of decisions related to the BRAC process and DOD’s overseas 

forces restationing strategy present further uncertainties in the Army’s 

facility cost estimate. Although recent cost data on BRAC have been 

reported, the Army’s current modularity facilities cost estimate predates 

the availability of the data and the Army has not updated its estimates 

accordingly. Both BRAC and the overseas restationing strategy have the 

potential to limit the Army’s ability to construct new permanent facilities 

to support its modularity requirements. The BRAC commission’s decision 

to close, realign, or reduce the size of military installations may constrain 

the construction funding available for the Army’s modular forces, thereby 

serving to delay the Army’s ability to construct sufficient permanent 

facilities for its modular force structure. The overseas restationing strategy 

aims to determine the optimum level of overseas stationing of U.S. military 

personnel and equipment in order to meet defense strategies. According to 

the Army, decisions related to the plan could return approximately 47,000 

Army soldiers to the United States. This would greatly add to the 

requirements for facilities as entire units are relocated back to bases in the 

United States and soldiers from disestablished overseas units are 

transferred to fill the new modular units. The Army will face severe 

facilities shortages due to the increased populations within its continental 

U.S. installations resulting simultaneously from the BRAC decisions, 

overseas restationing strategy, and modular force restructuring. This 

increased demand for facilities may force the Army to make trade-offs in 

its permanent facility construction plans and may delay the construction 

of permanent facilities for its new modular and restructured units. 

Although the Army has estimated that it will require about $3 billion per 

year for the 30,000 soldiers it has attributed to meeting the requirements of 

transforming to a modular force while conducting operations related to 

the Global War on Terrorism, uncertainty about the need for additional 

end strength could produce cost growth in personnel-related expenses. 

This uncertainty about the total end strength required for the modular 

force has been reflected in our discussions with Army officials, in recent 

deliberations by Congress, and in analyses by other research 

organizations. 

End Strength Requirements Are 

Uncertain and Could Increase 

Personnel Related Costs 
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Page 14 GAO-05-926 Force Structure 

• Officials from the Deputy Chiefs of Staff for Personnel told us in April and 

June 2005 briefings that the current authorized end strength of 512,400 

active duty soldiers may not be enough to meet modular force personnel 

requirements, especially during the transformation process. In these 

briefings, officials told us the Army would likely need 522,400 soldiers and 

possibly more to staff the modular force structure. 

• As a part of deliberations on the National Defense Authorization Act for 

Fiscal Year 2006, both houses of Congress have proposed increases in end 

strength in part to support the Army’s restructuring. The pending House 

Defense Authorization Bill increases the Army’s end strength to 512,400, 

with the option, as necessary, for the Secretary of Defense to increase the 

end strength as high as 532,400 for fiscal years 2007 through 2009.13 The 

Senate version of the bill authorizes increasing the size of the force to 

522,400 in fiscal year 2006.14

• Finally, an analysis by the CBO reported that the Army may need as much 

as 542,400.15 This end strength assumes that the Army will add the 5 

brigades to make a 48-brigade force and that it will be unsuccessful in 

reassigning 30,000 soldiers from the institutional to the operational force 

as planned. 

Increasing end strength has significant cost implications. Using the Army’s 

suggested estimate of $70,000 per additional soldier, increasing the end 

strength by 10,000 soldiers for a total of 522,400 from 2006 to 2011 would 

add $4.7 billion to the $23 billion cost estimate. However, this estimate is 

conservative, based primarily on personnel salaries but few other 

personnel-related expenses. The Army’s current estimate of about $3 

billion per year for 30,000 soldiers—a more comprehensive estimate that 

includes expenses for institutional and unit training, relocation, base 

support, and other items—translates to about $100,000 per soldier. Using 

this more inclusive per-soldier estimate, we estimate that it would cost an 

additional $6.7 billion if the Army were required to increase its end 

strength to 522,400. 

 13 H.R. 1815, 109th Cong. §§ 401, 1521, and 1522 (2005). 

14 S. 1402, 109th Cong. § 401 (2005). 

15 Congressional Budget Office, Options for Restructuring the Army (Washington, D.C.: 

May 2005), www.cbo.gov (downloaded May 11, 2005). 
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Page 15 GAO-05-926 Force Structure 

In written comments on a draft of this report, DOD stated that the end 

strength increase was temporary and related solely to current operations. 

As discussed in the section of this report on agency comments and our 

evaluation, we disagree with DOD’s comments on end strength. We note 

that the Army’s own documents justified the end strength increase for the 

dual purpose of transforming and conducting operations. For example, 

the Army’s approved 2005 Modernization Plan states that a 30,000 

temporary increase in the Army’s end strength enabled the beginning of 

the modular conversion of active component combat units. This view is 

consistent with Army briefings provided throughout our review that link 

the end strength increase with the Army’s modularity initiative. 

The Army’s funding plan for its modular force anticipates a combination of 

supplemental and annual appropriations, but risks borne of the fast pace 

of transformation, cost growth for the modular transformation, not 

achieving efficiencies as planned, and likely cost growth from FCS could 

pose affordability challenges in the future. The plan indicates that the 

transformation will be paid for with $10 billion in supplemental 

appropriations in fiscal years 2005 and 2006, and a total of $42.5 billion in 

its regular appropriations from 2005 through 2011. In addition, the Army 

anticipates receiving personnel funding to pay for increased end strength 

through either supplemental appropriations or an increase to the Army’s 

base budget. As noted earlier, we project these costs to total $23 billion, 

including inflation. Table 3 displays the annual totals for these funds. 

Table 3: Modular Force Funding Plan 

Dollars in billions 

 2005 2006 2007 2008 2009 2010 2011 Total

Supplemental 

appropriations 5.0 5.0 $10.0

Regular appropriations 1.5 6.6 7.6 9.1 9.2 8.5 $42.5

Supplemental or regular 

appropriations for 

increased end strength 3.0 3.1 3.2 3.3 3.4 3.5 3.6 $23.0

Total $8.0 $9.6 $9.8 $10.9 $12.5 $12.7 $12.1 $75.5

Sources: GAO analysis of Army funding plan; GAO projection of Army personnel cost data. 

Note: Figures may not add due to rounding. 

The Army intends to use this funding plan in developing funding requests 

for funds provided through both regular and supplemental appropriations. 

The Army’s Funding 

Plan Poses Funding 

Risks That May Cause 

Affordability 

Challenges in the 

Future 
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Page 16 GAO-05-926 Force Structure 

We note that the total costs reflected in the Army’s funding plan are not 

specifically identified in the Future Years Defense Program (FYDP)—

DOD’s centralized report for providing DOD and Congress data on current 

and planned resource allocations. According to Army officials, the fiscal 

year 2006 FYDP, which projects funding requests from fiscal years 2006 

through 2011, included only $42.5 billion of the $67.5 billion the Army 

plans to request over those years. Of that, only $25 billion was specifically 

designated in the FYDP for this purpose.16 The FYDP also included $17.5 

billion that the Army planned to use for modularity over that period 

according to Army officials, but these amounts were not specifically 

identified in the FYDP. Because the FYDP does not include anticipated 

requests for supplemental appropriations, the 2006 FYDP did not reflect 

either the $5 billion the Army plans to request in fiscal year 2006 or the $20 

billion we project the Army will request from fiscal years 2006 through 

2011 to support increases in end strength. 

 

Notwithstanding the potential for increases in the cost of modular force 

transformation noted above, this funding plan poses several risks that may 

raise difficult affordability questions in the future. First, when compared to 

the Army’s unit creation schedule, the plan indicates that the Army will be 

creating units before it has the funding available to resource them, as 

shown in figure 1. 

 16 This amount includes $5 billion per year from 2007 through 2011 that the Secretary of 

Defense specifically allocated to the Army for modularity in guidance for preparing the 

fiscal year 2006 budget request. 
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Page 17 GAO-05-926 Force Structure 

Figure 1: Comparison of Army Modularity Restructuring and Funding Schedules 

Note: The Army plan did not include funding data for fiscal year 2004. 

While the Army anticipates that 96 percent of its 194 active and reserve 

units will be created by 2008, it will have received only 51 percent of its 

anticipated funding required to restructure these units by that time. Army 

officials told us that while it was necessary to create these modular units 

to support ongoing operations, and that units deploying were being 

supplied with equipment required to execute ongoing operations, the 

Army could not afford to equip the modular units according to its planned 

equipping levels for the modular force at the time the units were created. 

Therefore, to avoid canceling or restructuring other programs, funding 

was flattened out over time to meet the constraints of the funds available. 

In written comments on a draft of this report, DOD acknowledged that 

some units will face equipment shortages in the early years of 

transformation but the Army will manage these shortfalls through 

preplanned processes and stringent management controls. 

Also, the funding plan assumes that the Army will achieve a total of 

$4.5 billion in business process reengineering efficiencies, and that the 

savings associated with these efficiencies will be available to fund the 

2004 2005 2006 2007 2008 2009 2010 2011

Dollars in billions

0

2

4

6

8

10

12

14

Source: GAO analysis of Army funding data and unit creation schedules.

0

10

20

30

40

50

60

70

80

Modular units created/restructured

Fiscal year

Modular units created/restructured

Funding

8.0

9.6 9.8

10.9

12.5 12.7

12.1

1

4

32

40

68

24 22

3
App 

Page 18 GAO-05-926 Force Structure 

modular force as part of the Army’s regular appropriations. In December 

2004 budget guidance from the Deputy Secretary of Defense, the Army was 

instructed to assume that $1.5 billion in business process reform 

efficiencies would be available for the modular force in each of fiscal 

years 2009, 2010, and 2011. In written comments on a draft of this report, 

DOD stated that it had identified programmatic offsets for these 

efficiencies and intended to include them as part of its fiscal year 2007 

President’s budget request. However, Army officials told us that details of 

their plan were not yet finalized and available for review. As a result, we 

are unable to comment on the specific plan the Army has for achieving 

these efficiencies. However, we noted in our most recently issued HighRisk Series that for years we have reported on inefficiencies and the lack 

of transparency and appropriate accountability across DOD’s major 

business areas.17 Further, despite commitment and attention from senior 

DOD leaders, we found little tangible evidence of actual improvement in 

DOD’s business operations to date. Given this track record and the lack of 

data available for us to review, we are not confident that the Army can 

achieve these efficiencies as planned. 

Finally, as we testified in March 2005, the Army’s $108 billion FCS program 

is at significant risk for not delivering required capability within budgeted 

resources.18 Although the bulk of the funding for this high-priority program 

is planned for after 2011 when the Army plans to have completed its 

modular transformation, $23 billion is projected to be spent from fiscal 

years 2005 through 2011 on research and development costs. Given the 

scope of the program, our assessment that FCS is likely to encounter 

problems late in development when they are very costly to correct, and 

historical cost growth in weapons systems, we reported that cost growth 

associated with FCS could have dire consequences on the affordability of 

the Army’s programs, especially in light of a constrained discretionary 

budget. 

In comments to our report DOD stated that the FCS program is on track 

and stated that the Army uses a different standard for assessing 

technology maturity than GAO. Further, DOD stated that there is sufficient 

flexibility in its investment accounts that if financial risks arise, these risks 

can be addressed through extended planning period adjustments in future 

 17 GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005). 

18 GAO, Defense Acquisitions: Future Combat Systems Challenges and Prospects for 

Success, GAO-05-428T (Washington, D.C.: Mar. 16, 2005). 
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Page 19 GAO-05-926 Force Structure 

programming cycles. The fact remains that the program’s level of 

knowledge—a key indicator of budgetary risk—is far below that suggested 

by best practices or DOD policy: nearly 2 years after program launch and 

with $4.6 billion invested, requirements were not firm and only 1 of over 50 

technologies was mature as of our March 2005 testimony. Even using the 

Army’s standard for assessing technology maturity, less than 40 percent of 

the FCS technologies would be mature. Further, we note that while 

extended planning periods may make the program more affordable in a 

given year, we have reported that such extensions are costly.19

While the Army can generally track funds associated with individual 

programs, it has not established an approach for tracking funds obligated 

for its modular force transformation. As a result, the Army, DOD, and 

Congress will have limited visibility over whether funds are being 

expended as intended to achieve transformation goals, and will not have 

key data available to determine whether course corrections in the program 

are needed. Standards for internal control in the federal government state 

that internal controls should provide reasonable assurance that the 

objectives of the agency are being achieved.20 One of the categories of 

internal controls is reliability of financial reporting, including reports on 

budget execution. 

The Army’s inability to track obligations related to its modular 

transformation is most clearly illustrated by the lack of data from fiscal 

year 2004. In that year, the Army created or transformed a total of 22 units. 

However, the Army has been unable to determine how much money it 

obligated to do so. For example, officials from the Army Budget Office told 

us that they track obligations of the overall Army related to equipment and 

personnel, but cannot discern how much of the funds obligated were 

related to the modular force transformation versus other programs, such 

as repairing or replacing equipment from operations in Iraq and 

Afghanistan. In early cost projections, the Army had estimated that it 

would need $400 million to procure equipment and $96 million in 

personnel expenditures to support the modular transformation in fiscal 

year 2004. Although Army officials told us that the majority of equipment 

requirements were satisfied with equipment transfers from other units that 

 19 GAO, Major Management Challenges and Program Risks: Department of Defense, 

GAO-03-98 (Washington, D.C.: January 2003). 

20GAO/AIMD-00-21.3.1.

Lack of an Approach 

to Track Funds 

Obligated for the 

Modular Force Limits 

the Transparency of 

Funds Used 
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Page 20 GAO-05-926 Force Structure 

were not scheduled to deploy to operations in the near future, they were 

not able to tell us how much of the $400 million was offset by these 

transfers. Similarly, the Army was not able to distinguish how much of the 

amount of expenditures on personnel was attributable to the modular 

force transformation versus personnel cost increases associated with 

activating reservists for ongoing operations, and stop-loss policies 

designed to retain servicemembers for the operations beyond their service 

obligations. The Army did report that it obligated $133 million related to 

operations and maintenance for the modular force in fiscal year 2004 

through a database it employs to track obligations related to supplemental 

appropriations for the Global War on Terrorism. However, in our report on 

cost data related to the Global War on Terrorism to be issued later this 

month, GAO found numerous problems in DOD’s processes for recording 

and reporting costs for the Global War on Terrorism, raising significant 

concerns about the overall reliability of DOD’s reported cost data.

Army officials acknowledged the need to closely monitor resources 

required and applied to the modular force transformation, and noted that 

this monitoring occurs as part of weekly, high-level meetings with the 

Army Chief of Staff. These meetings focus on tracking equipment needs of 

transforming units and making sure that these needs are met. Equipment 

shortages can be filled with new equipment, transfers from other units, or 

by the unit falling in on equipment left in Iraq. There are also controls to 

track how many and what pieces of equipment have been purchased and 

distributed, according to these officials. However, because ongoing 

missions continually change the status and availability of equipment, it is 

difficult for Army officials to define whether new equipment meets the 

requirements of modular transformation or ongoing operational needs. 

Indeed, sometimes the equipment may serve to meet both purposes. Also 

the Army’s financial system has limitations and lacks the functionality 

required to split out modular components within each line of equipment. 

Army leadership, therefore, has made the decision that it is more 

important to account for the total equipment purchased; dollars spent; and 

operational issues, such as ensuring that equipment gets to the units that 

need it, rather than labeling a particular piece of equipment as dedicated 

to modular transformation or not. 

While we recognize the challenges of monitoring resource expenditures in 

the context of ongoing operations, we also note that in its estimates and 

requests for appropriations, the Army has been able to distinguish 

between funding requirements for its modular transformation and other 

priorities. For example, in documentation supporting the fiscal year 2005 

supplemental appropriation request, the Army stated that it required $4.6 
App 

Page 21 GAO-05-926 Force Structure 

billion for modularity largely to fund equipment, vehicles, and facilities, 

and $3.1 billion to reset and recapitalize tanks and other battle losses. 

While the Army appears to have established parameters for estimating 

modularity costs, it cannot apply them for tracking purposes. 

Despite a significant increase in its estimate to fund the modular 

transformation from its original estimate, the Army’s ultimate costs of the 

modular force will likely be higher than currently estimated due to 

uncertainties and pending decisions, which may drive costs even higher. 

Until the Army develops a detailed plan estimating the total costs of the 

modular force as designed and tested and starts submitting this plan to 

Congress each year, Congress cannot be assured that it is receiving an 

accurate reflection of all costs associated with this restructuring and the 

risks associated with any funding shortfalls, given the uncertainties of the 

current estimate. Moreover, it will be difficult for the Secretary of Defense 

to make informed decisions weighing the relative merits of programs 

departmentwide in terms of making trade-off decisions when faced with 

likely affordability challenges in the future. 

Further complicating its ability to project resource needs, the Army is not 

tracking and reporting obligations related to this effort by fiscal year. As a 

result, decision makers, including DOD and Army leadership and 

Congress, will not be able to assess whether funds appropriated for 

modularity have been utilized for the purposes intended nor will they have 

historical information useful in considering future funding needs. 

To improve information available to decision makers on the cost of the 

Army’s plan for modularity, we are making to recommendations to the 

Secretary of Defense. 

We recommend that the Secretary of Defense direct the Secretary of the 

Army to provide Congress a detailed plan estimating the costs of 

modularity sufficient to provide Congress reasonable assurance that 

estimated costs reflect total costs of modularity as designed and tested. 

Such a plan should be prepared annually and submitted as part of 

justification material supporting DOD’s budget request, until the modular 

force is fully implemented. It should include 

• a clear definition of what costs the Army does and does not consider to be 

related to the modular transformation; 

• estimates for equipment, facilities and personnel; 

Conclusions 

Recommendations for 

Executive Action 
App 

Page 22 GAO-05-926 Force Structure 

• identification of uncertainties in the plan due to pending force structure 

design decisions or other decisions that may affect costs, and updates to 

the plan as these decisions are made; 

• a report on obligations related to the modular force made the previous 

fiscal year; and 

• divergences from the plan as stated in the prior year’s report, and 

contributing factors. 

To facilitate his oversight of the program and collecting the data for 

Congress mentioned above, we also recommend that the Secretary of 

Defense direct the Secretary of the Army in coordination with the 

Undersecretary of Defense (Comptroller) to develop a plan for overseeing 

the costs related to the Army’s transformation to a modular force. This 

plan should include an approach for tracking modular transformation 

costs that clearly identifies obligations for the modular force. 

The Congress should consider requiring the Secretary of Defense to 

provide a plan for overseeing spending of funds provided for modularity. 

In written comments on a draft of this report provided by the Army on 

behalf of DOD, the department strongly disagreed with our findings 

related to the cost estimate for the modular force and the uncertainties 

cited. DOD stated that the Army’s $48 billion cost estimate is solid and 

does not include uncertainties. For example, although DOD expects the 

modular force design to change, it does not believe these changes will 

substantially change the Army’s cost estimate. Also, DOD objected to our 

inclusion of personnel costs in our estimate because it believes the end 

strength increase is temporary and entirely related to the Global War on 

Terrorism. DOD noted that an end strength increase would not have been 

necessary in a peacetime environment. DOD also stated that our report 

includes costs related to resetting the force, BRAC, overseas restationing 

of service members, and FCS. The department noted that these costs were 

not included in its estimate for the modular force, nor should they be. 

Despite these concerns, DOD partially concurred with our 

recommendations. 

Matter for 

Congressional 

Consideration 

Agency Comments 

and Our Evaluation 
App 

Page 23 GAO-05-926 Force Structure 

We do not agree that DOD is in a position to state that the Army’s cost 

estimate is solid and continue to believe that our findings fairly reflect the 

potential costs and uncertainties associated with the Army’s modular 

transformation. As we state in our report, at the time the estimates were 

set, the Army had not finished the designs for support units and command 

and control echelons. In addition, we note that the Army has not included 

the equipment quantities in the tested design as the basis for determining 

equipment costs. If subsequent testing or lessons learned demonstrate any 

weaknesses in the current design, the Army may decide to modify 

equipment levels or force structure, which could affect costs. We 

recognize that some of these uncertainties, such as those related to 

facilities costs and force design, are a reflection of preparing an estimate 

for a very complicated undertaking where there are many moving parts. 

Given the complexity of this undertaking and two decades of GAO reports 

delineating DOD’s overly optimistic planning assumptions in budget 

formulation, which often lead to program instability or costly program 

stretch outs, we believe these uncertainties should be explicitly 

acknowledged so that decision makers can make informed decisions. 

Regarding the inclusion of personnel costs related to the end strength 

increase, we note that the Army’s own documents justified the end 

strength increase for the dual purposes of transforming and conducting 

operations. For example, the Army’s 2005 Modernization Plan states that a 

30,000 temporary increase in the Army’s end strength enabled the 

beginning of the modular conversion of active component combat units. 

Moreover, the Army’s initial 2004 estimate included personnel costs due to 

increases in end strength. Finally, it is not clear how the Army would be 

able to add 10 combat brigades to the active component without affecting 

end strength in some manner. For these reasons we continue to believe 

that the Army needs to recognize these costs in its estimate. 

DOD also suggests that costs associated with resetting the force, BRAC, 

overseas restationing of forces, and FCS are included in our estimate of 

$75.5 billion. While we cite these issues as either pending decisions or 

related programs that could affect the scope or affordability of the 

modular transformation, we do not include the costs of these programs in 

the estimate itself. 

DOD partially concurred with our recommendation that the Secretary of 

Defense direct the Secretary of the Army to provide improved cost 

estimates to reflect the total cost of the modular transformation as 

designed and tested, and recognized the need for periodic reporting on the 

modular force. DOD also cited forthcoming reports that it believed would 
App 

Page 24 GAO-05-926 Force Structure 

provide official, comprehensive oversight of the modular force initiative. 

Specifically, DOD cited a report due to Congress in September 2005 on the 

long-range plan for executing and funding the modular force initiative that 

includes related budget projections for fiscal years 2007 through 2011, 

funding challenges, equipment requirements, and program management 

oversight practices. In addition, according to the comments, the Army was 

directed to provide the Office of Management and Budget, through the 

Office of the Secretary of Defense, an annual report for the Army modular 

force. We agree with DOD that additional reporting on this initiative is 

needed, and note that the reporting requirements from both Congress and 

the Office of Management and Budget also indicate a need for improved 

information. Our recommendation does not seek to create redundant and 

unnecessary additional reporting requirements, as was indicated in DOD’s 

comments. Indeed, our recommendation allows DOD wide latitude in how 

it provides the information we believe Congress needs for oversight to 

avoid such redundancy. However, we also note that the reports DOD cited 

have not yet been finalized, and we are unable to determine from DOD’s 

description whether these reports would address our recommendations. If 

these reports adequately address the reporting requirements we 

recommend, there would be no need for additional reporting on DOD’s 

part. 

DOD also partially concurred with our recommendation that the Secretary 

of Defense direct the development of a plan for overseeing the costs 

related to the Army’s transformation to a modular force. DOD noted that 

the Undersecretary of Defense (Comptroller) will closely monitor the 

funding and execution of projects and programs associated with 

transformational efforts as part of its oversight responsibilities. However, 

DOD also noted that there were no plans to establish an encompassing 

framework, grouping Army projects together under “modularity.” It stated 

that such a framework would dramatically expand the billing process, 

increase administrative costs, and more importantly complicate 

distribution of material in a wartime environment. We continue to believe 

that the Army will need a framework or approach to oversee expenditures 

for modularity in order to provide DOD and Congress the information 

needed for effective oversight. We note that the recommendation provides 

DOD wide latitude to establish an approach for tracking modular 

transformation costs, and we do not advocate a framework that would 

require a separate billing system or complicate distribution of material in a 

wartime environment (or any environment). As we noted in the report, in 

preparing its budget estimate and request for funding, the Army has 

already grouped projects together under the modularity umbrella and has 

identified specific funding needs for modularity. DOD is asking Congress 
App 

Page 25 GAO-05-926 Force Structure 

to allocate $48 billion to this modular transformation (over $75 billion 

when personnel and some other costs are included). As with any initiative 

of this magnitude, the Secretary of Defense and Congress require the best 

data available to weigh competing resource requirements so that they can 

make appropriate trade-off decisions. Information on how the Army has 

spent funds provided for modularity should be considered in formulating 

future funding requests. Therefore, our recommendation is intended to 

provide assurance that future such requests consider the obligations made 

thus far so that Congress has a sound basis on which to determine 

whether funds allocated to the modular force are being obligated as 

intended. Because DOD stated it has no plans to establish a framework to 

track these obligations, and given the magnitude and significance of the 

effort as well as the fact that DOD has requested funds from Congress 

specifically for modularity, we continue to believe oversight of 

expenditures is needed. Therefore, we have included a matter for 

congressional consideration. Specifically, Congress should consider 

requiring the Secretary of Defense to provide a plan for overseeing 

spending of funds provided for modularity. 

DOD’s comments are reprinted in appendix II and addressed as 

appropriate in the body of the report. Annotated evaluations of DOD’s 

comments are also included in appendix II. 

We are sending copies of this report to the Secretary of Defense, the 

Undersecretary of Defense (Comptroller), and the Secretary of the Army. 

We will also make copies available to others upon request. In addition, this 

report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me 

at (202) 512-9619 or pickups@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix III. 

Sharon L. Pickup 

Director, Defense Capabilities and Management
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Page 26 GAO-05-926 Force Structure 

List of Committees 

The Honorable John Warner 

Chairman 

The Honorable Carl Levin 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

The Honorable Ted Stevens 

Chairman 

The Honorable Daniel Inouye 

Ranking Minority Member 

Subcommittee on Defense 

Committee on Appropriations 

United States Senate 

The Honorable Judd Gregg 

Chairman 

The Honorable Kent Conrad 

Ranking Minority Member 

Committee on the Budget 

United States Senate 

The Honorable Duncan Hunter 

Chairman 

The Honorable Ike Skelton 

Ranking Minority Member 

Committee on Armed Services 

House of Representatives 

The Honorable Bill Young 

Chairman 

The Honorable John Murtha 

Ranking Minority Member 

Subcommittee on Defense 

Committee on Appropriations 

House of Representatives 
App 

Page 27 GAO-05-926 Force Structure 

The Honorable Jim Nussle 

Chairman 

The Honorable John Spratt 

Ranking Minority Member 

Committee on the Budget 

House of Representatives 
Appendix I: Scope and Methodologyp

Page 28 GAO-05-926 Force Structure 

Overall, our analysis of the Army’s cost estimate, funding plan, and 

approach for tracking obligations pertaining to its modular transformation 

was limited to an examination of data presented in broad spending 

categories, such as equipment, facilities, and personnel costs by year. We 

interviewed and examined documents from knowledgeable Army officials 

about assumptions underlying each of these funding categories. Further, at 

headquarters and command levels, we examined the processes in place to 

monitor obligations related to the modular force. We found this 

information sufficiently reliable to analyze the assumptions underlying 

costs of the modular force and funding plans. Because of the uncertainties 

in the cost estimates and weaknesses in its approach to monitor 

obligations related to the modular force, we made recommendations to 

address each of these areas in order to improve data available for decision 

makers. Our specific methodology for each reporting objective follows. 

To determine the extent to which Army reflected expected costs and 

identify areas of uncertainty in the estimate, we obtained overall cost 

estimates from the offices of the Deputy Chief of Staff G-81

 and the Deputy 

Assistant Secretary of the Army for Budget. We also examined justification 

materials supporting the fiscal year 2006 budget request, as well as the 

fiscal year 2005 request for supplemental appropriations, and monitored 

the development of the strategy, scope, schedule, and status of Army 

restructuring by examining key planning documents, such as the Army 

Campaign Plan, the 2004 Army Transformation Roadmap, and the Army 

Modernization Plan. To examine areas of cost uncertainty likely to be 

produced by transforming to a modular force, we discussed assumptions 

underlying these estimates and obtained corroborating documentation in 

interviews with officials from the Department of the Army Deputy Chiefs 

of Staff for Personnel (G1), Intelligence (G2), and Operations and Training 

(G3), and the Assistant Chief of Staff for Installation Management. We 

further discussed assumptions and areas of uncertainty with these offices’ 

organizational counterparts at Forces Command in Fort McPherson, 

Georgia; the 3rd Infantry Division, in Fort Stewart, Georgia; the 101st 

Airborne Division in Fort Campbell, Kentucky; and the 4th Infantry 

Division, in Fort Hood, Texas. We also reviewed reports by nonDepartment of Defense entities such as the Congressional Budget Office, 

and our own reviews related to Army personnel. We compared these 

sources against the Army’s cost assumptions to determine if they 

 1

 This office is responsible for programming, materiel integration, and management of 

Department of the Army studies and analyses. 

Appendix I: Scope and Methodology 
Appendix I: Scope and Methodologyp

Page 29 GAO-05-926 Force Structure 

comprehensively accounted for expenses stemming from the strategy, 

scope, and schedule for transforming to a modular force. 

To determine the Army’s plan for funding these costs and factors that may 

affect its ability to fund the modular force, we considered the cost 

estimates in the context of the larger Army budget, particularly the Army’s 

reliance on supplemental appropriations and how funding the modular 

force fit into other programs and initiatives. Specifically, we examined 

justification materials for the 2006 presidential budget, the 2005 

supplemental appropriation request, and budget guidance from the Office 

of the Deputy Secretary of Defense. To identify factors that could affect 

the Army’s ability to fund modularity, we questioned Deputy Chief of Staff 

G-8 officials about the Army’s plan to garner efficiencies to apply to costs 

of the modular force to determine the status of these plans. We also relied 

on ongoing and previous GAO reviews of business process reengineering 

to evaluate Army efficiency claims. In addition, we considered the impact 

other priorities might have on the implementation of the Army’s 

modularity plan, including current operations, the Future Combat 

Systems, Base Realignment and Closure decisions, and decisions to 

restation soldiers from overseas. 

Applying federal internal control standards, we determined whether the 

Army has an adequate approach in place to track obligations related to the 

modular force. In that regard, we interviewed officials from the Office of 

the Deputy Assistant Secretary of the Army for Budget and the Resource 

Management Office at Forces Command, and resource management 

officials at the 3rd Infantry Division, the 101st Airborne Division, and the 

4th Infantry Division to determine how these entities tracked funds 

earmarked for the modular force. We reviewed documents establishing 

guidance from Army headquarters and discussed and documented how 

this guidance was implemented at lower command levels. In addition, we 

relied on the results of GAO’s analyses of funds used to support the Global 

War on Terrorism, to the extent that these funds were used to support the 

modular force. 

Our review was conducted from May 2004 through June 2005 in 

accordance with generally accepted government auditing standards. 
Appendix II: Comments from the Department 

of Defensep

 Page 30 GAO-05-926 Force Structure 

Appendix II: Comments from the Department 

of Defense 

Now on pp. 23 and 24. 

Now on pp. 22 and 23. 
Appendix II: Comments from the Department 

of Defensep

 Page 31 GAO-05-926 Force Structure 

Now on pp. 22 and 23. 

Now on pp. 22 and 23. 

Now on p. 17. 
Appendix II: Comments from the Department 

of Defensep

 Page 32 GAO-05-926 Force Structure 

Now on pp. 18 and 19. 

See comment 2. 

See comment 1. 

Now on pp. 15 and 23. 
Appendix II: Comments from the Department 

of Defensep

 Page 33 GAO-05-926 Force Structure 

See comment 3. 

Now on p. 7. 

Now on pp. 24 and 25. 

Now on p. 20. 
Appendix II: Comments from the Department 

of Defensep

 Page 34 GAO-05-926 Force Structure 

Now on pp. 23 and 24. 

Now on p. 7. 

Now on p. 7. 
Appendix II: Comments from the Department 

of Defensep

 Page 35 GAO-05-926 Force Structure 

Now on pp. 24 and 25. 
Appendix II: Comments from the Department 

of DefenseAp

Page 36 GAO-05-926 Force Structure 

The following are GAO’s comments on the Department of the Defense's 

letter dated September 7, 2005. 

1. We did not state that the Army would be unable to achieve efficiencies. 

Rather we noted the Army’s ability to realize savings is uncertain because 

DOD has historically had difficulty achieving expected efficiencies. 

2. We did not state that the costs of an additional five brigade combat 

teams should be included in the estimate. Rather, as with other 

uncertainties cited in this section, we noted that pending future decisions, 

including whether to add five brigade combat teams, could impact the cost 

of the modular transformation. 

3. We revised the text to reflect DOD’s comments that Army 

transformation supports DOD’s goals and that the Army has taken steps to 

design, schedule, build, and convert brigade combat teams and support 

brigades. We did not include the comments that these actions were 

completed within estimated costs because, as our report states, 

uncertainties remain about the Army’s cost estimates and the Army does 

not have a system for tracking modularity costs. 

GAO’s Comments 
Appendix III: GAO Contact and Staff 

AcknowledgmentsAp

Page 37 GAO-05-926 Force Structure 

Sharon L. Pickup (202) 512-9619 

In addition to the contact named above, Gwendolyn Jaffe, Assistant 

Director; Margaret Best; J. Andrew Walker; and Joah Iannotta made major 

contributions to this report. 

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Acknowledgments 

(350547) 
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